21–30 of 73 posts
This is unsustainable debt levels. It's like living on credit cards. These companies and countries should be downsizing.
Looks like we're setting ourselves up for a junk bond bubble down the road.
Central banks will just buy them onto their balance sheets. Its already begun: https://ftalphaville.ft.com/2020/04/30/1588254981000/How-sho... https://www.afr.com/markets/debt-markets/why-the-rba-is-lend...
Companies were over-leveraged and didn't have cash stockpiles. They're trying to get liquid cash so they don't have to divest of assets in a market that isn't buying or go into chapter 11. All the same, people are willing to extend loans because they are long on the economy, recovery, and return to normalcy. The engines are starting again. The biggest issue was that companies were over-leveraged with debt. Maybe we'l…
moral hazard through the roof
Looks like we're setting ourselves up for a junk bond bubble down the road.
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I am surprised the Avis has to goto the junk bond market - the cruise line I can sort of get
I'd assume most of their business is renting to people who've just flown somewhere, and right now hardly anyone is doing that.
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Don't these yields suggest that people actually aren't willing to extend the loans which is why the yields are spiking. Double digit yields in a deflationary economy should indicate that these loans are being made with a high expectation of default.
I am surprised the Avis has to goto the junk bond market - the cruise line I can sort of get
Just think - if nobody is flying, who is renting all those cars?
Companies were over-leveraged and didn't have cash stockpiles. They're trying to get liquid cash so they don't have to divest of assets in a market that isn't buying or go into chapter 11. All the same, people are willing to extend loans because they are long on the economy, recovery, and return to normalcy. The engines are starting again. The biggest issue was that companies were over-leveraged with debt. Maybe we'l…
The engines are always on, when prices/yields are allowed to appropriately reflect risk, without interference or intervention. One of the most important functions of an unobstructed free market is price discovery.
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I don't know that I see 95% dilution as totally reasonable terms for a bailout (though I know absolutely nothing about the details of that example), but making it clear that bailouts come with a cost seems like a good development ... so good on the Norwegian government for doing that.
Why do you consider that unreasonable, when the free-market option is bankruptcy? They got to keep 5%, rather than 0! The terms of the emergency loan was a certain debt:equity ratio, so in order to qualify, their very high debt load had to be reduced. This could be accomplished in any way the company desired, and it turned out that the only viable pathway was to allow bondholders to convert their loans to new shares…
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I am surprised the Avis has to goto the junk bond market - the cruise line I can sort of get
Hertz is on the verge of bankruptcy so it only follows that the risk premium for Avis is high. Just think - if nobody is flying, who is renting all those cars?
Companies were over-leveraged and didn't have cash stockpiles. They're trying to get liquid cash so they don't have to divest of assets in a market that isn't buying or go into chapter 11. All the same, people are willing to extend loans because they are long on the economy, recovery, and return to normalcy. The engines are starting again. The biggest issue was that companies were over-leveraged with debt. Maybe we'l…
That's why we see Apple issuing $8B of debt (at ~135bps over 30 year Treasury bonds!) despite having over $200B of cash on hand. If your hurdle rate is 2.5%, surely your profitable business can return more to shareholders than that, so you should binge on this capital source? (Or even, as Apple claims it will do, distribute this directly to shareholders via buybacks & dividends.)
Also, I would qualify your statement that people are not necessarily long the economy in the short-term, which is where credit markets have miraculously thawed; they're long the fact that they will undoubtedly be able to get credit from yet someone else (namely, the lender of last resort).